Low global oil prices since late 2014 have led the authorities to attempt to diversify Algeria’s economy. The country’s automotive sector has been one of those most profoundly affected, as the government seeks to reduce the import bill and stem the outward flow of foreign currency at a time when revenues from hydrocarbons are reduced. The sector has undergone significant regulatory changes aimed at increasing local manufacturing – with a view to increasing exports, creating local value-added industries, diversifying the economy, and increasing the inward flow of foreign currency.
Changes to import licences and quotas have had a particularly significant impact. The requirement for licences was introduced in late 2015, and imports came to a standstill in early 2016 until the Ministry of Commerce granted licences in May of that year. Licences and quotas have enabled the authorities to reduce the number of vehicles being imported: 560,000 were imported in 2012, whereas the quota for 2016 was 83,000 and the permitted quota for 2017 is 30,000. Furthermore, the government required vehicle importers to invest in an industrial or semi-industrial project in the sector (assembly or manufacture of parts) by 31 December 2016. The authorities have set a target of 40,000 vehicles to be assembled domestically in 2017.
The government has come under increasing pressure to review its policy towards the automotive sector. The Ministry of Industry and Mines published a review on 31 July of its policy towards the import of both complete and ‘semi-knocked-down’ vehicles (which are assembled in Algeria and sold on the domestic market). The review recommended that the government only provide access to companies that invest in the country and create jobs there. It also recommended that the authorities limit tax breaks and make their renewal conditional on companies agreeing to export vehicles that have been assembled in Algeria. The prime minister has asked for all negotiations over automotive projects to be suspended until the regulatory review has taken place.
Putting on the brakes
- Automotive companies will face significant restrictions on the number of completed vehicles they can import into Algeria over the coming two years. Following May’s cabinet reshuffle the prime minister and the president have both stressed the need to stem the outflow of foreign currency and to incentivise domestic manufacturing. There appears to be broad consensus about the continued need for the authorities to pursue measures aimed at furthering these goals. The pressures on the economy – driven by persistently low oil prices and government mismanagement – are also likely to cause the authorities to maintain their approach to import restrictions.
- The government over the coming months is likely to develop a more coherent policy with regard to domestic assembly and manufacturing, in which local content requirements are likely to feature more prominently. The domestic media, and both foreign and Algerian companies, have criticised the government for not providing sufficient incentives for prospective inward investors in manufacturing; media outlets and companies have also criticised the government’s poor communication of upcoming regulatory changes and the manner in which these measures will be implemented. The new minister of industry is seeking to develop the automotive sector as an export industry and as a source of job creation. The government’s recent review indicates that the workforces of foreign companies involved in assembling and manufacturing vehicles will need to comprise at least 15% Algerian nationals within three years and at least 40% Algerian nationals within five years.
- Corruption in the automotive sector tends to relate to the import of vehicles. However, the enforcement of anti-corruption legislation is likely to improve over the coming two years. The customs authorities are among the most corrupt within the state bureaucracy, though there have been efforts in recent months to reform and modernise them. Algeria’s customs systems are outdated, regulations are overlapping and lack transparency, and the clearance of goods can therefore be slow. Businesspeople indicate that low-level officials often demand facilitation payments to move goods into and out of ports. The authorities have recently implemented reforms aiming at simplifying customs procedures, improving the quality of checks and increasing transparency, for example by enabling companies to know how the duty they are being charged has been calculated. Many of these measures are designed to fight corruption by making procedures more standardised, and some customs officials have undergone anti-corruption training.
What to watch
The government has provided no clear dates or milestones for the next steps in its review of policy towards the automotive sector. However, it has committed to prioritising the review, and statements are therefore likely over the coming weeks and months. Nevertheless, the authorities are often poor at communicating how regulatory reforms will be implemented or over what timeframe. In keeping with precedent in Algeria, foreign companies may therefore have little public warning that changes are forthcoming.
Outlook
Regulations affecting the import of vehicles are unlikely to change significantly over the coming two years. However, regulations affecting the manufacture and assembly of vehicles are more open to change as the government’s policy review continues. There are likely to be greater local content requirements. Enforcement of anti-corruption legislation is also likely to improve, particularly with regard to customs procedures, as the government attempts to better enforce its restrictions on imports and reduce the outflow of foreign currency.